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Gillard to Rudd: Game on

Australian PM challenges man she ousted in party coup to a leadership vote.

ASIA-BUSINESSASIA - Bring it on.

Australian Prime Minister Julia Gillard responded Aussie-style to a challenge from the premier she ousted two years ago.

JULIA GILLARD, AUSTRALIAN PRIME MINISTER SAYING:

"Following Kevin Rudd's resignation yesterday, I have formed this view that we need a leadership ballot in order to settle this question once and for all. I believe it is in the interests of the Labor Party that it be determined once and for all but much more importantly I believe it is in the interests of the Australian nation."

Gillard called for a vote by ruling-party lawmakers on Monday, gambling that a quick victory would silence Rudd.

The Australian leader accuses Rudd of trying to destabilise her unpopular government and regain the top job.

JULIA GILLARD, AUSTRALIAN PRIME MINISTER SAYING:

"In recent days I believe that this has moved to a distraction from governing itself. That's not good enough. Australians are rightly sick of this, and they want it brought to an end."

Rudd, whom Gillard ousted as PM in an internal coup in June 2010, was first to throw down the gauntlet while on a visit to Mexico.

FORMER AUSTRALIA FOREIGN MINISTER, KEVIN RUDD, SAYING:

"The truth is I can only serve as foreign minister if I have the confidence of Prime Minister Gillard and her senior ministers. In recent days, minister (Simon) Crean and a number of other faceless men have publicly attacked my integrity and therefore my fitness to serve as a minister in government. When challenged today on these attacks, Prime Minister Gillard chose not to repudiate them. I can only reluctantly conclude that she therefore shares these views. The simple truth is that I cannot continue to serve as foreign minister if I do not have Prime Minister Gillard's support."

After resigning his post as foreign minister, he hinted at a challenge to Gillard to save the Labor Party.

FORMER AUSTRALIA FOREIGN MINISTER, KEVIN RUDD, SAYING:

"I'm very pleased and encouraged by the amount of positive support and encouragement of me to contest the leadership of the Australian Labor Party. I've many more calls to make. Their overall argument to me is that they regard me as the best prospect to lead the Australian Labor Party successfully to the next elections. To save the Australian Labor Party at those elections and to save the country from the ravages of an avid government."

Australians have become increasingly unhappy with the Gillard administration.

Rudd remains more popular with voters but Gillard has the backing of more of the governing Labor Party's 103-member caucus, including most senior cabinet members

So Rudd is considered unlikely to have the numbers to mount a successful challenge.

Still, a surprise victory by Rudd could force an early election and a change of government, putting key reforms at risk.

These include a carbon tax and 30 percent tax on coal and iron ore mine profits, both due to start on July 1.

Markets in Sydney reacted calmly, slipping largely on concerns over poor manufacturing numbers from Europe, and high oil prices.

The Australian dollar fell on China's factory data and lower global risk sentiment, but had pared losses by midday.